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Bias in Tax Progressivity Estimates

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  • Johannes König

Abstract

Tax progressivity is central in public and political debates when questions of vertical equity are raised. Applied, structural research demands a simple way to capture it. A power function approximation delivers one parameter that captures the residual income elasticity — a summary measure of progressivity. This approximation is accurate, tractable, and interpretable, and hence immensely popular. The most common procedure to estimate this parameter, a log ordinary least squares specification, produces biased and inconsistent estimates. A nonlinear estimator solves this issue and, using different data sets, I find differences in estimates between 6 and 14 percent.

Suggested Citation

  • Johannes König, 2023. "Bias in Tax Progressivity Estimates," National Tax Journal, University of Chicago Press, vol. 76(2), pages 267-289.
  • Handle: RePEc:ucp:nattax:doi:10.1086/724186
    DOI: 10.1086/724186
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